Espresso: May 5th

Espresso for May 5th

 

QUOTE OF THE DAY                                                                                            

 

Presumptive Republican nominee Donald Trump said that looking ahead to the general election, he will not self-fund his campaign, instead creating a “world-class finance organization.” <— ?!

 

WHAT MARKETS ARE TALKING ABOUT


BRAZILIAN LOWER HOUSE SPEAKER’S STATUS

Brazil’s Supreme Court is scheduled to rule today whether to strip Congressman Eduardo Cunha of his status as lower house speaker, a position that puts him in direct line for the presidency. The court will meet at 2 p.m. local time to discuss a motion presented by the Sustainability Network political party, which argues that Cunha shouldn’t be so close to becoming the country’s president in light of the corruption allegations against him. Cunha has denied any wrongdoing and refuses to step down. Cunha would take Brazil’s top job if President Dilma Rousseff, 68, and Vice President Michel Temer, 75, both step down or leave office. If the impeachment proceeding against Rousseff succeeds and she is ousted, Temer would take over and Cunha would be first in line for the presidency.


 

OIL IN LATAM

We published a note (here) yesterday on oil and Latin America. The oil price collapse has had winners and losers in the region. Net importers are benefiting from lower cost for oil products, but this is not the case for LatAm’s major oil producers: Argentina, Brazil, Colombia, Ecuador, Mexico and Venezuela. These countries are facing different challenges that go from lower oil revenues to fiscal imbalances; deep economic crisis; and an increasing risk of default.

Oil prices have had a dual shock in the fiscal revenues of most of the major oil producers. Lower oil prices have meant lower revenues from exports, but also a decreasing capital expenditure to maintain output levels. Perhaps with the exception of Argentina and Ecuador, Latin America’s major producers have witnessed significant declines in their crude production platforms.

Oil prices and requirements

 

Despite the different trends in crude output, between 2013 and 2015 all major oil producers have seen their public sector borrowing requirements gro. Lower oil revenues have deteriorates fiscal deficits, also raising their need to borrow. This in turn has put pressure on these countries’ liabilities.

Gross debt

 


 

BANXICO’S RATE DECISION

Mexico’s central bank (BANXICO) is expected to hold its key lending rate steady today on renewed currency depreciation. All 25 analysts surveyed by Reuters said they expect the CB to keep the benchmark interest rate at 3.75%. The central bank is due to announce its decision at 13:00 local time (3 p.m. ET). The MXN has gained roughly 6% since the CB unexpectedly raised rates by 50 basis points in February and directly intervened in the FX market for the first time since 2009 to try to halt a slide in the currency. Mexico is expected to raise borrowing costs along with the Fed to prevent capital flow reversal. Mexico’s annual inflation rate rose less than expected in the first half of April to 2.60 percent, remaining below BANXICO’s 3% target. Follow our Twitter timeline @latampm for more updates on today’s decision and reactions.